US exports of NGLs poised to quadruple by 2020

The Panama Canal expansion, slated for completion in 2015, will allow the transit of large tankers and put costs to ship US gas liquids to Asia on a par with deliveries from the Middle East, according to Sanford C. Bernstein. US exports would jump to 20 million metric tons by 2020 from the current 5 million tons.

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By CHRISTINE BUURMABloomberg

US exports of natural gas liquids, already at a record amid
surging output from shale deposits, are poised to quadruple by
2020 as the expansion of the Panama Canal cuts shipping costs
to Asia.

Deliveries of the fuels to foreign buyers averaged 555,000 bpd
in July, the most in US government data going back to 1981.
Chinas imports of propane, butane and isobutane, with
uses as varied as home heating, chemical manufacturing and
refrigeration, jumped 23% in August from a year earlier,
customs data show.

The Panama Canal expansion, slated for completion in
2015, will allow the transit of large tankers and put costs to
ship US gas liquids to Asia on a par with deliveries from the
Middle East, according to Sanford C. Bernstein & Co. US
exports would jump to 20 million metric tons by 2020 from the
current 5 million tons, making the country the worlds
largest exporter of those fuels, ahead of Qatar and Saudi
Arabia, Bernstein said.

The Panama Canal widening is definitely a positive for
propane and butane producers in the US who want to get rid of
product, Bradley Olsen, director of midstream research at
Tudor, Pickering, Holt & Co. in Houston, said in an Oct. 17
phone interview. Were going to be in a situation
where the US is effectively increasing supply on the global
market by about 30% in the course of three or four
years.

Mont Belvieu

Propane in Mont Belvieu, Texas, the main U.S. NGL storage hub,
rose 0.75 cent, or 0.7 percent, to $1.1575 a gallon on Oct. 18,
according to prices from DTN Energy Services LLC in Omaha,
Nebraska. Propane has climbed 29 percent this year, averaging
about 95 cents compared with $1 in 2012.

Natural gas for next-month delivery on the New York Mercantile
Exchange has gained 11% this year.

Hydraulic fracturing, a drilling technique in which water, sand
and chemicals are blasted underground to force out natural gas
and crude trapped in layers of rock, has led to a surge in US
production of hydrocarbons including NGLs.

US natural gas output totaled 65.7 billion cubic feet/day last
year, making the country the worlds largest producer of
the fuel since 2009, according to BPs Statistical Review
of World Energy. Oil production rose to 7.83 million bpd in the
week ended Sept. 13, the highest level since May 1989, US
Energy Information Administration data show.

Energy Security

The US met 87% of its own energy needs in the first
six months of 2013, on pace to be the highest annual rate since
1986, according to the EIA, the Energy Departments
statistical arm.

US exports of propane, an LPG, or liquefied petroleum gas, used
for heating, cooking and the manufacture of chemicals and
plastics, totaled a record 271,000 bpd in July, up 62%
from the same period last year, EIA data show. Exports have
jumped 15-fold from July 2008. Production of propane and
propylene climbed to a record 1.44 million bpd in the week
ended Sept. 27.

North American LPG production has surged amid growing oil and
gas output from shale formations and other reservoirs with low
permeability, Neil Beveridge, a senior analyst at Bernstein in
Hong Kong, said in an Oct. 4 note to clients.

US Supplies

We expect demand for US LPG to increase sharply,
which will put downward pressure to Middle East LPG export
prices, Beveridge said.

Proposed NGL terminals in the US would add at least 480,000 bbl
of daily export capacity through 2014, Kurt Hallead, co-head of
global energy research at RBC Capital Markets in Austin, Texas,
said in an Oct. 17 note to clients. Planned projects include Sunoco Logistics'
Mariner East pipeline, which would deliver propane and ethane
from the Marcellus shale formation to Marcus Hook,
Pennsylvania, where the fuels can be shipped overseas.

In the US, where ethane is the preferred petrochemicalfeedstock, and most homes and
businesses are heated with natural gas, electricity or heating
oil, domestic demand for propane is stagnant or
falling, Tudor Pickerings Olsen said.

You have a wedge of oversupply that continues to grow and
needs to be handled by exports, he said.

Bigger Canal

The $5.3 billion Panama Canal expansion will enable the transit of
larger vessels, including a class of tankers called Very Large
Gas Carriers, which transport propane, butane and liquefied
natural gas. Vessels of that size going from the East Coast to
Asia currently have to go around Cape Horn or through the Suez
Canal.

Construction to double the
canals capacity is 64% complete, the Panama Canal
Authority said on its website Sept. 10. The expanded waterway
will be able to handle ships as long as 1,200 feet (366 meters)
and as wide as 160 feet, against the current 965 feet and 106
feet, data on the website show. Only seven of the VLGC
fleets 154 vessels can use the canal now, according to
data from IHS Maritime, a Coulsdon, England-based research
company.

Once the canal project is completed, sailing time
will be cut to 25 days, compared with 41 via Cape Horn,
Bernsteins Beveridge said. Freight costs will be reduced
by 30% to 50%, he said.

Chinas Plans

The expansion comes as Asias appetite for lower-cost NGLs
is increasing. China has approved the construction of 17 propane
dehydrogenation units, which convert propane into propylene
used to make plastics, antifreeze, deodorant and other consumer
products. The new plants will require 12 million tpy of
propane, most of which will probably be imported from the US,
Bernstein said.

Chinas economic growth accelerated for the first time in
three quarters, as Premier Li Keqiang spurred factory output
and investment to meet the governments expansion goal for 2013.

Gross domestic product rose 7.8% in the July- September period
from a year earlier, the National Bureau of Statistics said
Oct. 18 in Beijing, matching the median estimate in a Bloomberg
News survey. Industrial production advanced in September by
10.2%.

Most of the uptick in US propane deliveries overseas has
been very recent, said Hassan Ahmed, head of research at
Alembic Global Advisors in New York. If the glut of NGLs
in the US continues, youre definitely going to see more
exports to the Asia market.

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